Reciprocity - 1922–1975

After World War I the nations of Europe began to assert a greater degree
of economic nationalism. The unconditional most-favored-nation clause that
had generalized bilateral tariff negotiations before the war was not
effectively rehabilitated. After 1930 the Great Depression accelerated
these trends, and a wide variety of new discriminatory economic tactics
emerged. These included exchange controls, quotas, internal taxes on
foreign goods, and the creation of vast preferential trading systems. The
British created the imperial preference system in 1932, and Germany
developed a similar structure using barter and a special currency that
could be exchanged only for German goods.

Subject to the same pressures, the United States also exhibited some
protective reactions. In the Fordney-McCumber Tariff Act of 1922 and the
Smoot-Hawley Tariff Act of 1930, Congress pushed the tariff to the highest
levels in American history. In 1920, Congress attempted to restrict the
entire commercial treaty system by "authorizing and
directing" the president to scrap the existing treaties and thereby
reimpose discriminatory tonnage duties on foreign ships. During the 1930s,
Congress authorized import quotas on agricultural products, and imposed
these in some cases. It also levied excise taxes on imports.

Paradoxically, the executive branch began gradually and sporadically to
move against the prevailing trends and toward a revitalization of equality
of treatment and reciprocity. By the latter half of the 1930s, the United
States had emerged as the leading (and perhaps only) exponent of an open
world commercial system.

All of the Republican administrations of the 1920s refused to implement
the act providing for merchant marine discrimination. The Tariff
Commission under William S. Culbertson launched a campaign to revitalize
reciprocity by shifting the United States to the unconditional
most-favored-nation principle. President Warren Harding and Secretary of
State Charles Evans Hughes accepted the argument that the conditional
principle had produced "discriminatory reciprocity" and
implemented the change. The tariff acts of 1922 and 1930 contained elastic
clauses, advocated by the Tariff Commission, that authorized the president
to raise or lower duties by 50 percent on a nondiscriminatory basis (that
is, if the duty was reduced on an item, the reduction would apply to all
nations, regardless of treaty status). This was not implemented because of
the political conflicts involved.

The administration of Franklin D. Roosevelt divided into two factions over
the issue of economic nationalism, and followed a vacillating and even
contradictory policy for several years. The home market group, led by
George Peek of the Agricultural Adjustment Administration, wanted import
quotas and bilateral barter deals. In 1933 this group seemed to be winning
the internal power struggle, especially when Roosevelt under-mined
Secretary of State Cordell Hull's liberalization efforts at the
London Economic Conference.

Hull was the leader of the trade liberalization group. In many respects,
he and other officials of the period were intellectual descendants of the
philosophes, who believed that an open world based upon reciprocity in all
areas was the only prescription for a peaceful world. The international
scene of the 1930s provided a powerful argument for this position. Hull
believed that economic nationalism had produced the collapse of the world
economy and was continuing to provoke a vicious cycle of economic
retaliation, militarization, and a struggle for privileged positions that
could end only in war. In the last analysis, it was a struggle between
open and closed economic systems, and between freedom and tyranny. The two
were indivisible.

Hull's position gradually, and with some difficulty, gained ground
after 1933. The victories were limited and mixed with contradictory
elements. The first breakthrough came with the passage of the Reciprocal
Trade Agreements Act in 1934. This amendment to the tariff act of 1930 was
a tactic that avoided a congressional battle over consideration of the
entire tariff schedule. The president was empowered to conclude bilateral
trade agreements that reduced duties as much as 50 percent. All such
treaties were to incorporate the most-favored-nation principle, which was
broadened to include negotiations over internal taxes, import prohibitions
and quotas, and exchange controls. All treaties, however, were to contain
the "Cuban exception" clause (allowing preferential
treatment) and an "escape" clause.

Between 1934 and 1945 the United States concluded twenty-seven treaties,
and tariff rates were reduced on average by 44 percent of their base rate.
Hull's efforts to eliminate other forms of discrimination produced
mixed results, and his attack on the British imperial preference system
was shelved during World War II. Hull also used the reciprocity argument
in demanding "equi-table" treatment for U.S. interests in
Latin America, arguing that the Good Neighbor Policy of the United States
required reciprocal behavior. However, the administration did relax the
insistence on extraterritorial rights, as evidenced by U.S. policy toward
Mexico's expropriation of the oil industry in 1938.

Planning for the postwar world by American officials cannot be
comprehended adequately without an understanding of their intense belief,
even to the point of obsession, that the United States must lead the way
to an open world or face another cycle of depression and war. At times the
intensity of this belief blinded them to other factors and produced a
self-righteous image of the purity of American policies. The fears and
ideological fervor engendered by the Cold War complicated and confused the
push for an open world. In the years after 1945 many of the ideas and
impulses associated with the imperial, open-door concept were reasserted,
to coexist and compete with the open world view.

American officials wanted to make reciprocity an integral part of the
postwar world order. Many hoped that the United Nations would lead the way
in eliminating spheres of interest. In addition, the United States helped
to create the International Monetary Fund and the International Bank for
Reconstruction and Development as means to restore multilateralism and
nondiscrimination in international economic relations.

In 1947, twenty-three nations took another important step toward a liberal
trading system by concluding the General Agreement on Tariffs and Trade
(GATT). This agreement provided for multilateral reciprocity and included
a code for fair trading in international commerce. In 1948, the U.S.
Congress refused to ratify a charter that would have institutionalized
GATT in the International Trade Organization, because Congress opposed the
creation of an international body that would exercise control over U.S.
trade policies. But GATT has survived through periodic conferences. By the
1970s, eighty nations accounting for more than 80 percent of total world
trade had joined. In 1963 the national representatives of GATT relieved
the underdeveloped nations within the system of the necessity to
reciprocate fully for concessions granted by the more developed countries.

Since 1945 Congress has periodically extended the president's
bargaining power and authorized additional reductions in the tariff.
However, protectionist sentiment has moderated reciprocity and preserved
some areas of discrimination. A "United States exception"
clause was added to the GATT charter, in deference to American desires to
retain import quotas on some agricultural products. In the 1950s, Congress
also directed the president to place import quotas and embargoes on
various products in the interest of national security. Oil import quotas
were imposed in 1959, and during the 1950s similar restrictions were
applied to such goods as Gouda cheese, safety pins, and dental burs.

Cold War antagonisms also produced some retreat from complete reciprocity.
In 1950 the United States placed an embargo on all trade with the
People's Republic of China and North Korea, and most-favored-nation
status for the Soviet Union and other communist nations was withdrawn in
1951. In 1960–1961 the government proclaimed an embargo on all
trade with Cuba and tried to obtain European and Latin American
cooperation; even to the point of blacklisting ships going to Cuba and
forbidding them entry into United States ports. In August 1975 the
Organization of American States abolished the "paper"
embargo against Cuba. Subsequently, the United States eliminated the
blacklist and other sanctions imposed on nations trading with Cuba. In May
1977, President James E. Carter began the process of restoring trade
relations by authorizing Cuban purchases of food and medicine.

In August 1971, under mounting economic pressures, President Richard M.
Nixon took several steps that seemed to imply a retreat from reciprocity
and a shift to a decidedly nationalistic policy. The president suspended
the convertibility of the dollar into gold, imposed a surcharge on imports
and export quotas on soybeans, and threatened quotas on textile imports
from Asia. Paradoxically, in June he had lifted the embargo on trade with
China and removed some restrictions on wheat, flour, and grain shipments
to the Soviet Union and Eastern Europe.

Subsequently, President Nixon removed or modified the restrictions imposed
in 1971 and requested authority from Congress to enter a new round of GATT
negotiations. In December 1974, Congress finally passed the Trade Act of
1974, an extensive bill that clearly revealed the duality of American
policy. The Japanese described it as a "two-edged sword."
The act gave the president broad new powers to bargain away various tariff
and nontariff trade barriers, but it also provided for several retaliatory
actions against "unfair trade practices." In the area of
nontariff barriers, the president could negotiate pacts guaranteeing
access to the products of other nations (with congressional approval
required). This would allow the United States to enter a world food
reserve program.

However, the president for the first time was given explicit authority to
raise tariffs and tighten import quotas to deal with balance-of-payments
deficits and import competition problems. The act also provided duty-free
treatment (with some items excluded) for about one hundred underdeveloped
nations, but the preferences were denied to nations enforcing export
embargoes against the United States (aimed especially at those belonging
to the Organization of Petroleum Exporting Countries) and not cooperating
on expropriation and drug matters. Most-favored-nation treatment was
authorized for communist nations that permitted free emigration (earlier
acts had extended the principle to Poland and Yugoslavia). In 1975
most-favored-nation treatment was extended to Romania. The Soviet Union
objected to the emigration provisions and withdrew the trade agreement
(with most-favored-nation status) that had been negotiated earlier.